SILVIA MARIA GONZALEZ

Exchange student University of Deusto

The case

LLC (Festivals Company) need to give the travel agency 500.0000 as a companys security deposit. A company made some efforts to obtain the permission of holding one travel festival, but in accordance with the agreement, it needs to provide the presiding travel agency 500000 RMB as security deposit for such activity. The chairman and legal representative Mr. Ma directed the companys financing staff to pay 500000 Yuan as a company's security deposit for the above to mentioned travel festival of the travel agency. Then Mr. Ma asked the travel agency to pay such amount to C Co under the name of returning deposit. Later on, because of the transfer of share, Mr Ma steeped down.

Not until in audit has B co known the whereabouts of its 500.000 RMB. Therefore, B prosecuted Mr. Ma by reason of damaging the company's right and benefit by director and asked him to bear the burden of compensation. it also asked A co. and Co. to take severable compensation liability. It is investigated that in the early stage of B Companys establishment, Mr. Ma was the chairman and legal representative of A Co, then he was appointed to be the subsidiary of A Co, its chairman and legal representative- Mr. Hu was appointed by A Co, and Mr. Hu was the director of B Co meanwhile.

Question
1.

Is Mr. Ma, A Co and C Co all should be sever ably liable to repay the money? How shall the court make the judgment?

According with the law of commercial law. Paragraph .3 Articles 113

The directors shall be responsible for resolutions adopted by the board of directors. Where a resolution of the board violates any national statutes, administrative regulations or the articles of association, and causes the company to incur serious loss, those directors participating in the adoption of the resolution are liable to the company for damages. Provided, however, if a director is proven to have dissented at the vote adopting such resolution and such dissension was noted in the minutes, then the director may be exempt from liability.

So in this case, the director of the company took a decision without ask the shareholders. He is the responsible to damage the rights of the company.

The chairman Mr. Ma in the company A was the legal responsible and legal representative of the B and C ( as a filial)company but later he choose Mr Hu such as a director of the B company.

Article 41 (Right of convening shareholders meeting by shareholders) Where a limited liability company has a board of directors, its shareholders meeting shall be convened by the board of directors and presided over by the chairman of the board.

According with the article 41 that said:

Where the chairman of the board is unable to or does not perform his function, the meeting shall be presided over by a vicechairman. Where the vice-chairman is unable to

or does not perform his function, the meeting shall be presided over by a director jointly nominated by more than half of the directors representing more than one-tenth of the voting rights.

Where a limited liability company does not form a board of directors, the shareholders meetings shall be convened and presided over by the executive director. Where the board of directors or executive director cannot or does not perform its function, the shareholders meeting shall be convened and presided over by the board of supervisors or the supervisor in the absence of a board of supervisors. Where the board of supervisors or supervisor cannot or does not perform its function, the meeting shall be convened and presided over by shareholders

This paragraph can explain us that the chairman of the company has taken the decisions in a wrong way, and put Mr. Hu as a director without talk with anybody and without being a vice-chairman. So he has to be the responsible of his acts.

Where the chairman of the board is unable to or does not perform his function, the meeting shall be presided over by a vicechairman. Where the vice-chairman is

unable to or does not perform his function, the meeting shall be presided over by a director jointly nominated by more than half of the directors representing more than one-tenth of the voting rights.

Where a limited liability company does not form a board of directors, the shareholders meetings shall be convened and presided over by the executive director . This paragraph can explain us that the chairman of the company has taken the decisions in a wrong way, and put Mr. Hu as a director without talk with anybody and without being a vice-chairman. So he has to be the responsible of his acts. On the other side we do not know if there was a board of directors. So maybe in that case he choose the correct decision.

The article 38 said about that one of the functions of this law is: (3) To examine and approve reports of the board of directors;

The founds

Article 149 The director and senior officer: (1) May not misappropriate company funds;

(2) May not deposit company assets into an account in his own name or in any other individual's name;
(3) may not loan company funds to other people or give company assets as security for the debt of any other individual without the approval of the shareholders meeting, general meeting of shareholders or the board of directors in violation of the articles of association;

Article 150

If a director, supervisor or the senior officer causes detriment to the company while performing his duties in violation of laws, administrative regulations or the articles of association, he shall be liable for the loss so caused.

Article 152

Where a director or senior officer is involved in the circumstance as described in Article 150, the shareholders of a limited liability company or a joint stock limited company that individually or jointly hold one percent (1%) of the total shares for consecutive 180 days may request in writing the board of supervisors or the supervisors of a limited liability company without a board of supervisors to file suit before a peoples court. Where a supervisor is involved in the circumstance as described in Article 150, aforesaid shareholders may request in writing the board of directors or the executive director of a limited liability company without a board of directors to file suit before a peoples court

Article 153 Where a director or senior officer violates laws, administrative registrations or the articles of association, or infringes upon the rights and interests of the shareholders, the shareholders may file suit before a peoples court. How the court should solve the case? We can check the legal liability. First of all the director should return the money because he could be accused of fraud. He could not took any decision without to consult and ask the shareholders. In the second place he should not named the Mr Hu the manager of the B company without ask again and arrange a meeting.

Article 206

Where the company engages in any business activities unrelated to the liquidation, it shall be warned by the company registration authority and its income derived therefrom shall be confiscated.

Article 209

Where the company registration authority grants registration to an application which fails to meet the requirements prescribed herein or, refuses to grant registration to an application which meets the requirements prescribed herein, administrative penalty shall be imposed on the supervisor directly in charge and the other person(s) directly responsible in accordance with the law.

Article 215 Where a company violates of this Law, and is therefore liable for civil damages as well as for an administrative fine or criminal fine, and its assets are not sufficient to cover both, its assets shall first be used to cover the civil liability for damages.

Article 216

Where any violation of this Law constitutes a crime, criminal liability shall be imposed in accordance with the law.
Article 205

Where a company fails to notify creditors through notice or public announcement in accordance here with while carrying out merger, division, reduction of registered capital, or liquidation, it shall be ordered by the company registration authority to make rectification, and the company shall be fined not less than RMB 10,000 but not more than RMB 100,000.

conclusion

The court should tell the manager to return the money and open an expedient. The quantity of the money its not enough high to open a penal process. Maybe the company should dismiss him because he did some fraud mistakes.